Key Takeaways
- A gift of equity is when the difference between the appraised value and the agreed sale price is credited in the transaction and can be used toward the buyer’s down payment and closing costs.
- This process generally requires an appraisal and requires the seller to provide a signed gift of equity letter, but specific rules and limitations vary by loan program.
- While there are some tax forms involved, in most cases, a gift of equity will not result in either the buyer or seller having to pay additional taxes, though it can have implications for the buyer’s tax basis and potential capital gains on a future sale.
